SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended April 1, 1995 Commission File Number
Number 0-11559
KEY TRONIC CORPORATION
Washington 91-0849125
(State of Incorporation) (I.R.S. Employer
Identification No.)
----------------------
North 4424 Sullivan
Spokane, Washington 99216
(509) 928-8000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
---
At shares of Common Stock, no par value (the only class of common stock),
were outstanding.
KEY TRONIC CORPORATION
INDEX
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Balance Sheets - April 1, 1995
and July 2, 1994 3-4
Consolidated Statements of Income - Third Quarter
Ended April 1, 1995 and April 2, 1994 5
Consolidated Statements of Income - Three Quarters 6
Ended April 1, 1995 and April 2, 1994
Consolidated Statements of Cash Flows - Three Quarters
Ended April 1, 1995 and April 2, 1994 7
Notes to Consolidated Financial Statements 8-13
Item 2. Management's Discussion and Analysis of the Financial
Condition and Results of Operations 13-16
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Events 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 1, July 2,
1995 1994
--------- ---------
(Unaudited) (Audited)
(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 2,011 $ 4,996
Trade receivables, less allowance for
doubtful accounts of $1,355 and $1,539 28,725 25,435
Inventories (Note 2) 27,738 21,787
Real estate held for sale 2,339 2,339
Deferred income tax asset - current 2,617 2,940
Other 2,290 1,838
--------- ---------
Total current assets 65,720 59,335
Property, plant and equipment - at cost 87,944 82,348
Less accumulated depreciation 53,903 47,579
--------- ---------
Total property, plant and equipment 34,041 34,769
Other Assets:
Deferred income tax asset - non-current 5,182 5,810
Goodwill, net of accumulated amortization
of $110 and $40 1,690 1,760
Other 1,463 254
--------- ---------
Total other assets 8,335 7,824
--------- ---------
$ 108,096 $101,928
========= =========
See accompanying notes to consolidated financial statements.
KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
April 1, July 2,
1995 1994
--------- ---------
(Unaudited) (Audited)
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term obligations $ 4,017 $ 4,721
Accounts payable 16,895 17,159
Employee compensation and accrued vacation 3,975 2,929
Taxes other than income tax 2,065 1,496
Commissions payable 61 339
Other 4,416 5,076
--------- ---------
Total current liabilities 31,429 31,720
--------- ---------
Long-term obligations, less current portion
above 27,885 25,696
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Commitments and Contingencies (Note 3)
Shareholders' Equity:
Common stock, no par value, authorized
25,000 shares; issued and outstanding
8,361 and 8,271 shares 36,852 36,251
Retained earnings 10,896 8,320
Foreign currency translation adjustment 1,034 (59)
--------- ---------
Total shareholders' equity 48,782 44,512
--------- ---------
$ 108,096 $ 101,928
========= =========
See accompanying notes to consolidated financial statements.
KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Third Quarter Ended
April 1, April 2,
1995 1994
--------- ---------
(in thousands, except per share amounts)
Net sales $ 53,187 $ 39,423
Cost of sales (including warranty
provision of $274 and $57) 44,475 35,942
--------- ---------
Gross profit on sales 8,712 3,481
Operating Expenses:
Research, development and engineering 1,787 1,440
Selling 1,296 1,854
General and administrative (including
provision for doubtful accounts receivable 2,985 3,537
of $179 and $135)
Restructuring of business line 1,021
--------- ---------
Operating income (loss) 2,644 (4,371)
Interest expense 838 459
Other (Income) expense (30) (68)
--------- ---------
Income (loss) before federal taxes on income 1,836 (4,762)
Provision (benefit) for income taxes 437 10
--------- ---------
Net income $ 1,399 $ (4,772)
========= =========
Earnings Per Share (See exhibit 11):
Net income (loss) per weighted average
share $ N.A. $ (.58)
--------- ---------
Primary earnings per common share $ .14 N.A.
--------- ---------
Fully diluted earnings per common share $ .14 N.A.
--------- ---------
Weighted average shares outstanding 8,349 8,266
--------- ---------
Primary shares outstanding 9,937 N.A.
--------- ---------
Fully diluted shares outstanding 10,271 N.A.
--------- ---------
See accompanying notes to consolidated financial statements.
KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Quarters Ended
April 1, April 2,
1995 1994
--------- ---------
(in thousands, except per share amounts)
Net sales $ 147,371 $ 116,755
Cost of sales (including warranty
provision of $763 and $326) 124,757 104,186
--------- ---------
Gross profit on sales 22,614 12,569
Operating Expenses:
Research, development and engineering 4,566 4,367
Selling 3,902 5,836
General and administrative (including
provision for doubtful accounts receivable
of $160 and $353) 8,233 8,918
Restructuring of business line 1,021
--------- ---------
Operating income (loss) 5,913 (7,573)
Interest expense 2,272 1,240
Other (Income) expense (50) (137)
--------- ---------
Income (loss) before federal taxes on income 3,691 (8,676)
Provision for income taxes 1,115 40
--------- ---------
Earnings (loss) before cumulative effect of
change in accounting (Note 5) 2,576 (8,716)
Cumulative effect to July 4, 1993, of change
in accounting for income taxes (Note 5) 0 8,750
--------- ---------
Net income $ 2,576 $ 34
========= =========
Earnings (Loss) Per Share (See exhibit 11):
Before cumulative effect of change in
accounting N.A. $ (1.06)
========= =========
Net income per weighted average share N.A. N.A.
========= =========
Net income per weighted average share net
of cumulative effect of accounting change N.A. $ 0.01
========= =========
Primary earnings per common share net of
cumulative effect of accounting change $ .27 N.A.
========= =========
Fully diluted earnings per common share net
of cumulative effect of accounting change $ .25 N.A.
========= =========
Weighted average shares outstanding 8,312 8,217
========= =========
Primary shares outstanding 9,720 N.A.
========= =========
Fully diluted shares outstanding 10,234 N.A.
========= =========
See accompanying notes to consolidated financial statements.
KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Quarters Ended
April 1, April 2,
1995 1994
--------- ---------
(in thousands)
Increase (decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Net income $ 2,576 $ 34
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Depreciation and amortization 6,582 6,303
Provision for obsolete inventory 1,363 817
Provision for doubtful receivables 160 353
Provision for warranty 763 326
Gain on disposal of property and equipment (98) (12)
Cumulative effect of change in accounting
for income taxes (Note 5) 0 (8,750)
Changes in Operating Assets and Liabilities:
Trade receivables (3,450) 1,263
Inventories (7,314) (989)
Deferred income tax asset 951
Other assets (623) 846
Accounts payable (264) (32)
Employee compensation and accrued vacation 1,046 (43)
Other liabilities (1,131) (3,737)
Cash provided (used) by operating activities 561 (3,621)
--------- ---------
Cash Flows from Investing Activities:
Cash paid for assets acquired and
liabilities assumed, net (Note 1) (21,961)
Proceeds from sale of property and equip. 262 15
Purchase of property and equipment (5,777) (4,754)
--------- ---------
Cash used in investing activities (5,515) (26,700)
--------- ---------
Cash Flows from Financing Activities:
Refinancing fees (1,210)
Issuance of common stock 601 164
Proceeds from long-term obligations 28,368 24,909
Payments on long-term obligations (26,883) (252)
--------- ---------
Cash provided by financing activities 876 24,821
--------- ---------
Effect of exchange rate changes on cash 1,093 (475)
--------- ---------
Net decrease in cash and cash equivalents (2,985) (5,975)
Cash and cash equivalents, beginning of year 4,996 6,930
--------- ---------
Cash and cash equivalents, end of quarter $ 2,011 $ 955
========= =========
Non-Cash Investing and Financing Activities:
See note 6 to these financial statements
See accompanying notes to consolidated financial statements.
KEY TRONIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
The interim financial statements are unaudited but, in the opinion of
management, reflect all adjustments necessary for a fair presentation of results
of operations for such periods. All adjustments are of a normal recurring
nature. The results of operations for any interim period are not necessarily
indicative of results for the full year. These financial statements should be
read in conjunction with the financial statements and notes thereto contained in
the Company's annual report for the year ended July 2, 1994.
- ----------------------------------------------------------------------------
1. BUSINESS COMBINATION
On July 30, 1993, the Company acquired substantially all of the assets and
liabilities of Honeywell, Inc.'s Keyboard Division (HKD). The acquisition was
accounted for under the purchase accounting method of accounting and,
accordingly, the purchase price was allocated to the underlying acquired assets
and assumed liabilities at their estimated fair market values at July 30, 1993.
Acquisition costs are summarized as follows: (in thousands)
Cash $ 22,000
Liabilities assumed 5,832
Acquisition costs 5,000
Note payable, Honeywell Inc. 3,648
Common stock issued 3,200
---------
Total $ 39,680
---------
These costs were allocated based on fair value as follows:
Trade receivables $ 8,505
Inventories 10,964
Other current assets 489
Property, plant and equipment 17,922
Goodwill 1,800
---------
Total $ 39,680
---------
The stock was recorded at a twenty percent discount to the closing market price
on July 30, 1993 due to the three year trading restrictions on the stock at the
acquisition date. The costs incurred as part of the acquisition included
$1,125,000 for severance for terminating employees of HKD, $175,000 for
transition payroll for terminating employees of HKD, $1,100,000 for relocation
of employees of HKD, $700,000 for the closure of an acquired facility,
$1,000,000 for the assumption of certain potential liabilities, and $900,000 for
certain other direct purchase and integration costs.
Details of this transaction are more fully reported on Form 8-K dated July
30, 1993.
2. INVENTORIES
April 1, July 2,
1995 1994
--------- ---------
(Unaudited) (Audited)
(in thousands)
Finished goods $ 5,908 $ 3,385
Work-in-process 3,967 3,048
Raw materials 20,903 18,935
Reserve for obsolescence (3,040) (3,581)
--------- ---------
$ 27,738 $ 21,787
========= =========
The increase in raw materials and work-in-process inventory is primarily to
support demand based on increases in customer forecasts. The increase in
finished goods inventory is to support anticipated demand in the retail
channels.
3. COMMITMENTS AND CONTINGENCIES
CAPITAL COMMITMENTS - The amount of firm commitments to contractors and
suppliers for capital expenditures was approximately $1,433,000 at April 1,
1995.
Litigation
The Company used Mica Sanitary landfill until early 1975. Mica landfill is
a state lead National Priority List site ("NPL") . Mica landfill was placed on
the NPL in 1985. In l988 the Washington Department of Ecology and Spokane
County entered into a Consent Decree requiring the County to conduct a Remedial
Investigation (RI) followed by appropriate Remedial Action (RA). The RI was
completed in September 1992. An interim remedial action plan was completed in
late 1993 and instituted in mid 1994 to be followed by a 5 year performance
monitoring program to determine if additional remedial measures are needed. The
Company has not been named as a Potentially Liable Party ("PLP") under the State
Toxic Control Act ("STCA") or as a Potentially Responsible Party ("PRP") under
CERCLA, as amended ("CERCLA"). Prior to 1989 certain third parties were
designated PRP's and PLP's . The Company made a provision prior to the
beginning of fiscal year 1992 based on information then currently available to
it, for its estimate of probable legal costs to be associated with this matter.
The accrued balance was $900,000 at the end of the third fiscal quarter of 1995,
the end of fiscal 1994 and the end of the third quarter of fiscal year 1994. The
accrued balance reflects management's estimate of the probable future legal
costs associated with this matter. Management does not believe there to be any
reasonably probable losses beyond the existing accrual for probable losses which
could be material to future financial position or results of operations. No
provision has been made to cover any future costs to the Company of any remedial
action or clean-up activities because those costs, if any, can not be determined
at this time. Given the inherent uncertainty in environmental matters, limited
information available with respect to any future remedial measures, limited
information as to the number of PRP's and PLP's , the uncertainty as to whether
the Company will be designated a PRP or PLP with respect to the site and the
complexity of the circumstances surrounding this matter, management's estimate
is subject to and will change as facts and circumstances warrant. Based upon
estimated total costs of remediation and clean-up at the site publicly available
and the contributions to date of designated PRP's and PLP's, management believes
that insurance coverage is probable for any possible future remedial or clean-up
costs to the Company.
Pursuant to the Amended and Restated Purchase and Sale Agreement between
Honeywell, Inc. and Key Tronic Corporation, dated as of July 30, 1993 (the
"Agreement"), the Company assumed liability for a portion of any unknown and
unasserted claims against Honeywell, Inc. ("Honeywell") relating to
environmental matters and to product liability matters associated with products
manufactured by Honeywell prior to its ceasing manufacture of those products on
the closing date of the Agreement. Honeywell retained responsibility for
unasserted claims not assumed by the Company as follows: Honeywell retained
responsibility for unasserted environmental and product liability claims in
excess of $1,000,000 in the aggregate which 1) in the case of environmental
claims are discovered and asserted within two years following the closing date
or which 2) in the case of product liability claims are asserted within five
years following the closing date. Management estimates that unknown and
unasserted product liability claims in the amount of $1,000,000 during the 5
years following the closing of the Agreement are probable and recorded this
liability as part of the acquisition costs. . The accrued balance was $735,000
at the end of the third fiscal quarter of 1995 versus $950,000 at the end of
both fiscal 1994 and the third quarter of fiscal year 1994. The reduction in the
accrued balance reflects charges for expenses. Management does not believe
there to be any reasonably probable losses beyond the existing accrual for
probable losses which could be material to future financial position or results
of operations. The Company has not made a provision for Honeywell environmental
claims which may be discovered and asserted after the closing date or product
liability claims which may be asserted five or more years after the closing
date, because management does not believe such potential liabilities are
estimable at this time. No environmental claims have been asserted as of fiscal
year end 1994. Given the inherent uncertainty in litigation, in environmental
matters and in contract interpretation, the inherently limited information
available with respect to unasserted claims and the complexity of the
circumstances surrounding these matters, management's estimates are subject to
and will change or be established as facts and circumstances warrant.
The Company has assumed certain obligations under the Agreement related to
intellectual property claims associated with Honeywell products. The Company has
made a provision in 1994 in the amount of $455,000, based upon information
currently available to it, for its estimate of costs to be associated with this
matter. These matters are in the early stages of investigation. Management
does not believe there to be any reasonably probable losses beyond the existing
accrual for probable losses which could be material to future financial position
or results of operations.
The Company currently has one hundred eight suits by computer keyboard
users which are in State or Federal Courts in California, Florida, Kentucky,
Pennsylvania, New Jersey and New York. These suits allege that specific
keyboard products manufactured by the company were sold with manufacturing,
design and warning defects which caused or contributed to their injuries. The
alleged injuries are not specifically identified but are referred to as
repetitive stress injuries (RSI) or cumulative trauma disorders (CTD). These
suits seek compensatory damages and some seek punitive damages. It is more
likely than not that compensatory damages, if awarded, will be covered by
insurance, however the likelihood that punitive damages, if awarded, will be
covered by insurance is remote. The Florida, one New Jersey and the
Pennsylvania suits were removed from New York. A total of eight suits have been
dismissed from New York, California and Texas, the dismissal of one California
suit was recently reversed on appeal. The Company believes it has valid
defenses and will vigorously defend these claims. These claims are in the early
stages of discovery. Given the early stage of litigation, the complexity of the
litigation, the inherent uncertainty of litigation and the ultimate resolution
of insurance coverage issues, the range of probable losses in connection with
these suits is not estimable at this time. Therefore no provision has been made
to cover any future costs. Management's position will change if warranted by
facts and circumstances.
The liability for litigation related matters, including compensatory
damages, remediation and legal costs, was $2.2 million, $2.4 million and $2.5
million as of April 1, 1995, July 2, 1994 and April 2, 1994, respectively.
4. LONG TERM OBLIGATIONS
On October 24, 1994 the Company entered into a secured financing agreement
with the CIT Group/Business Credit, Inc. (CIT). The agreement contains a $12
million term note and a revolving loan for up to $28 million. The agreement is
secured by the assets of the Company. This agreement replaces a $5.0 million
secured revolving credit agreement and a $20.9 million note payable to a
financial institution. At April 1, 1995 and July 2, 1994, the Company was in
compliance with all debt covenants and restrictions.
Details of this transaction are more fully reported on Form 8-K dated
October 31, 1994.
Long-term obligations consist of:
April 1, July 2,
1995 1994
--------- ---------
(in thousands)
Note payable - CIT $ 11,990 $ 0
Revolving loan - CIT 15,265 0
Note payable - financial institution 0 22,000
Revolving line - financial institution 0 3,715
Note payable - Honeywell, Inc. 3,649 3,649
Deferred compensation obligation 666 698
Capital lease obligations 332 321
Installment contracts 0 34
--------- ---------
31,902 30,417
Less current portion (4,017) (4,721)
--------- ---------
$ 27,885 $25,696
========= =========
5. INCOME TAXES
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes," as of July 4, 1993. The
standard changes the method of accounting for income taxes to the asset and
liability method. The result of this accounting change, recorded cumulatively
in the first quarter of 1994, was to increase net earnings for the year ended
July 2, 1994, by $8,750,000 or $1.16 per primary common share. This change did
not have a material effect on the income tax provision recorded in 1994.
6. SUPPLEMENTAL CASH FLOW INFORMATION
Third Quarter Ended
April 1, April 2,
1995 1994
--------- ---------
(in thousands)
Interest payments $ 808 $ 459
Income tax payments 0 10
7. RESTRUCTURING CHARGES
During the third quarter of fiscal year 1994, the Company made $1,021,000
in restructuring provisions.
This provision represented costs to redeploy production from the Company's
Cheney WA plant to other Company plants where lower costs can be attained. The
provision included $592,000 to reduce certain assets to estimated realizable
value, $207,000 for severance and $222,000 for other costs directly associated
with this plant closure. The restructuring activities were implemented during
the Company's third fiscal quarter of 1994 and were scheduled for completion in
the fourth fiscal quarter of 1994 or the first fiscal quarter of 1995.
The writedown of assets is comprised of equipment writedown and facility
writedown. The equipment writedown was estimated as the difference between book
value and the highest firm offer on the equipment. The building writedown was
estimated as the difference between book value and average value determined from
multiple independent market valuations. This writedown had no effect on cash or
cash equivalents.
The severance charge was calculated by applying the Company's standard
severance policy to the employee's affected.
The direct cost charge is primarily transportation costs associated with
the relocation of equipment from the closing facility to other Company
facilities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
The Company provided cash flows of $.6 million from operating activities
over the first three quarters of fiscal 1995 versus $3.6 million of cash used in
operating activities during the same period of the prior year. During the first
three quarters of 1995, $5.8 million was expended in capital additions.
During the first three quarters of the prior year, $4.8 million was
expended in capital additions. The Company anticipates capital expenditures of
approximately $2.3 million through the remainder of the current fiscal year
ending July 1, 1995. Capital expenditures are expected to be financed with the
combination of internally generated funds, capital leases, and limited amounts
of secured indebtedness.
On October 24, 1994 the Company entered into a secured financing agreement
with The CIT Group/Business Credit, Inc. (CIT) (see note 4 to the financial
statements). The agreement contains covenants that relate to minimum net worth,
minimum working capital, income statement and balance sheet ratios and restricts
investments, disposition of assets, and payment of dividends. The agreement
contains a $12,000,000 term note and a revolving loan for up to $28,000,000.
The agreement is secured by the assets of the corporation. At April 1, 1995 and
July 2, 1994, the Company was in compliance with all debt convenants and
restrictions.
The term note is payable in quarterly installments of principal, each in
the amount of $500,000, commencing in November 1995 and maturing in November
2001. This note bears interest at one and three quarters percent (1.75%) in
excess of the Chemical Bank Rate, which approximates prime (9.0% at April 1,
1995).
The revolving loan is renewable and covers an initial period of
approximately three years expiring on the first business day of November 1997.
This loan bears interest at one and one half percent (1.50%) in excess of the
Chemical Bank Rate, which approximates prime. Borrowings outstanding under this
agreement at April 1, 1995 amounted to $15,265,000.
This agreement replaces a $5.0 million secured revolving credit agreement
and $20.9 million note payable to a financial institution.
As a result of the acquisition of substantially all of the assets and
liabilities of the Honeywell Keyboard Division (HKD) (see note 1 to the
financial statements), the Company issued a $3.6 million note to Honeywell, Inc.
This note is payable in four installments of principal and interest on the last
business day of July and October of 1995 and January and April of 1996. This
note bears interest at the prime rate.
Real estate held for investment and sale is carried at net realizable value
based upon appraisals and management's intentions for sale or investment.
Management is actively marketing the properties through real estate brokers and
has obtained independent appraisals. The property is recorded at the lower of
cost or net realizable value.
During the first nine months of fiscal year 1995 "other current assets"
increased by $.5 million. This increase is due to approximately $300,000 for
insurance premium renewals and $200,000 for prepaid royalties.
During the first nine months of fiscal year 1995 "other (non-current)
assets" increased by $1.2 million. This increase is due to refinancing charges
incurred. These charges will be amortized over the life of the financing
agreement.
The Company believes that cash, cash equivalents, funds available under the
line of credit, and internally generated funds can satisfy cash requirements for
a period in excess of 12 months.
NET SALES
Net sales for the fiscal 1995 third quarter, which ended April 1, 1995,
were $53.2 million compared to $39.4 million for the third quarter of the
previous year. The increase in revenue is a result of additional revenue from
new customers and product lines. For the nine months ended April 1, 1995, sales
were $147.4 million compared to $116.8 for the same period of the previous year.
The increase in revenue is a result of an increased revenue base realized from
the acquisition of HKD coupled with additional revenue from new customers and
product lines.
Keyboard shipments increased 26.4% over the third quarter from the prior
year while the average selling price increased approximately 3.2%. The increase
in units shipped is due primarily to the sale of new products. For the nine
months ended April 1, 1995, unit shipments increased 27.2% over the same period
of the prior year while the average selling price declined approximately 2.7%.
The increase in units shipped is due primarily to the addition of operations
from HKD, new customer sales, and the sale of new products. Non-keyboard revenue
accounted for 12.2% of total revenue in the third quarter versus 9.1% in the
third quarter of the prior year. For the nine months ended April 1, 1995, non-
keyboard revenue accounted for 10.2% of total revenue versus 8.4% for the same
period of the prior year.
COST OF SALES
Cost of sales were 83.6% of revenue in the third quarter of 1995 compared
to 91.2% for the third quarter of 1994. The cost of sales percentage decreased
due to increased margins resulting from cost reductions, higher margins in new
products, and manufacturing efficiencies gained due to the redeployment of
production from the company's Cheney WA plant to other locations (details of
this transaction were more fully reported on Form 10-Q dated April 2, 1994).
Cost of sales were 84.7% of revenue for the nine months ended April 1, 1995,
compared to 89.2% for the same period of the prior year. The cost of sales
percentage decreased due to increased margins resulting from cost reductions,
higher margins in new products, and manufacturing efficiencies gained due to the
redeployment of production from the company's Cheney WA plant to other
locations. This decrease in cost of sale percentage was also aided by a
favorable change in fixed cost absorption as a result of the increased volume in
units and dollars.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses were $1.8 million in the
third quarter of fiscal 1995 and $1.4 million for the same period of fiscal
1994. As a percentage of sales, R, D & E expenditures were 3.4% in the third
quarter of 1995 compared to 3.7% in the third quarter of 1994. As a percent of
revenue the decrease is due primarily to the increase in the revenue base.
Research, development and engineering expenses were $4.6 million for the nine
months ended April 1, 1995 and $4.4 million for the same period of the prior
year. As a percentage of sales, R, D & E expenditures were 3.1% during this
period compared to 3.7% for the same period of the prior year. As a percent of
revenue the decrease is due primarily to the increase in the revenue base.
SELLING EXPENSES
Selling expenses were $1.3 million in the third quarter of 1995 compared to
$1.9 million in the third quarter of 1994. Selling expenses as a percentage of
revenue were 2.4% for the quarter compared to 4.7% in the same quarter of fiscal
1994. Selling expenses decreased, both in dollars and as a percentage of
revenue, due to efficiencies gained upon combining with HKD operations and
decreased commissions. Commissions decreased due to the company's decision to
discontinue the use of outside sales representatives. Selling expenses were $3.9
million for the nine months ended April 1, 1995 compared to $5.8 million for the
same period of the prior year. Selling expenses as a percentage of revenue were
2.6% for the quarter compared to 5.0% in the same quarter of fiscal 1994.
Selling expenses decreased, both in dollars and as a percentage of revenue, due
to efficiencies gained upon combining with HKD operations and decreased
commissions. Commissions decreased due to the company's decision to discontinue
the use of outside sales representatives.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $3.0 million in the third quarter
of 1995 compared to $3.5 million in the third quarter of fiscal 1994. As a
percent of revenue G&A expenses were 5.6% in the third quarter compared to 9.0%
during the third quarter of the prior year. As a percent of revenue the decrease
is primarily due to the increased revenue base. General and administrative
expenses were $8.2 for the nine months ended April 1, 1995 compared to $8.9
million for the same period of the prior year. As a percent of revenue G&A
expenses were 5.6% in the third quarter compared to 7.6% during the third
quarter of the prior year. As a percent of revenue the decrease is primarily due
to the increased revenue base.
INTEREST
Interest expense was $838,000 in the third quarter of 1995 compared to
$459,000 for the third quarter of 1994. For the nine months ended April 1, 1995
interest expense was $2,272,000 compared to $1,240,000 for the same period of
the prior year. These increases are due to a combination of increased
borrowings and higher interest rates.
INCOME TAXES
Income taxes provision was $437,000 and $10,000 for the third quarters of
1995 and 1994, respectively. In the third quarter of 1995 $89,000 of this
provision and all of 1994's third quarter benefit relate to taxes on earnings of
foreign subsidiaries. The remaining $348,000 of the third quarter 1995
provision relates to taxes on U.S. earnings. For the nine months ended April 1,
1995 income taxes provision was $1,115,000 compared to $40,000 for the same
period of the prior year. $165,000 of this provision and $59,000 of the prior
year provision relate to taxes on earnings of foreign subsidiaries. The balance
of the provision relates to taxes on U.S. earnings. The Company has tax loss
carryforwards of approximately $27.7 million which expire in varying amounts in
the years 2003 through 2009.
ESOP
No contributions to the Employee Stock Ownership Plan (ESOP) were made
during the first nine months of fiscal years 1995 and 1994.
BACKLOG
The Company's backlog at the end of the third fiscal quarter of 1995 was
$49.3 million compared to $35.5 million at the end of the 1994 fiscal year and
$34.6 million at the end of the third quarter of fiscal 1994.
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Events
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
Exhibit 99 - Pro Forma Statement of Operations for the third
quarters ended April 1, 1995 and April 2, 1994
Notes to Pro Forma Financial Statements
(b) Reports on Form 8-K
Form 8-K dated October 31, 1994 reporting the secured financing
agreement with The CIT Group/Business Credit, Inc. SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
KEY TRONIC CORPORATION
----------------------- -----------
Thomas W. Cason Date
President &
Chief Operating Officer
----------------------- -----------
Ronald F. Klawitter Date
Principal Financial &
Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
KEY TRONIC CORPORATION
/s/ Thomas W. Cason 5/15/95
----------------------- -----------
Thomas W. Cason Date
President &
Chief Operating Officer
/s/ Ronald F. Klawitter 5/15/95
----------------------- -----------
Ronald F. Klawitter Date
Principal Financial &
Accounting Officer
_______________________________
1
Please make 11 copies.
- 9 with conformed signatures
- 2 manually signed
Make 1 copy of manually signed for our files.
- - 1 conformed to M.A.D.
- - 15 extra conformed copies for distribution to the officers (excluding Mr.
Hiller & Mr. Pearson)
FILING REQUIREMENTS:
SEC: 1 Original copy
2 conformed copies w/exhibits
5 conformed copies w/o exhibits
NASDAQ: 1 Original copy
2 conformed copies w/exhibits
Please make 2 copies of generic letters. 1 for package along with original and 1
for our files. Please send return self addressed stamped envelopes.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Key
Tronic Corporation 3rd quarter Form 10-Q for 1995 and is qualified in its
entirety by reference to such Form 10Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-01-1995
<PERIOD-END> APR-01-1995
<CASH> 2011
<SECURITIES> 0
<RECEIVABLES> 30080
<ALLOWANCES> (1355)
<INVENTORY> 27738
<CURRENT-ASSETS> 65720
<PP&E> 87944
<DEPRECIATION> 53903
<TOTAL-ASSETS> 108096
<CURRENT-LIABILITIES> 31429
<BONDS> 0
<COMMON> 36852
0
0
<OTHER-SE> 11130
<TOTAL-LIABILITY-AND-EQUITY> 108096
<SALES> 53187
<TOTAL-REVENUES> 53187
<CGS> 44475
<TOTAL-COSTS> 44475
<OTHER-EXPENSES> 5859
<LOSS-PROVISION> 179
<INTEREST-EXPENSE> 838
<INCOME-PRETAX> 1836
<INCOME-TAX> 437
<INCOME-CONTINUING> 1399
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1399
<EPS-PRIMARY> 14
<EPS-DILUTED> 14
</TABLE>
Exhibit 11
KEY TRONIC CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<S><C>
(Unaudited)
THIRD QUARTER ENDED THREE QUARTERS ENDED
April 1, April 2, April 1, April 2,
1995 1994 1995 1994
-------- -------- -------- --------
Primary
Earnings
Net Income $ 1,399 NOT $ 2,576 NOT
Add after tax interest expense APPLICABLE APPLICABLE
applicable to term debt * 0 0
Add after tax interest income
applicable to short term paper * 0 0
-------- -------- -------- --------
Income applicable to common stock $ 1,399 $ 2,576
======== ======== ======== ========
Shares **
Shares outstanding 8,349 8,312
Assuming exercise of options reduced
by the number of shares which could
have been purchased with the proceeds
from exercise of such options * 1,588 1,408
-------- -------- -------- --------
Adjusted common stock outstanding 9,937 9,720
======== ======== ======== ========
Primary earnings per common share $ 0.14 $ 0.27
======== ======== ======== ========
Assuming full dilution
Earnings
Net Income $ 1,399 NOT $ 2,576 NOT
Add after tax interest expense APPLICABLE APPLICABLE
applicable to term debt *** 0 0
Add after tax interest income
applicable to short term paper *** 0 0
-------- -------- -------- --------
Income applicable to common stock $ 1,399 $ 2,576
======== ======== ======== ========
Shares **
Weighted average shares outstanding 8,349 8,312
Assuming exercise of options reduced
by the number of shares which could
have been purchased with the proceeds
from exericse of such options *** 1,922 1,922
-------- -------- -------- --------
Adjusted common stock outstanding 10,271 10,234
======== ======== ======== ========
Fully diluted earnings per common share $ 0.14 $ 0.25
======== ======== ======== ========
ADDITIONAL COMPUTATIONAL INFORMATION:
Net loss before cumulative effect of change
in accounting ($4,772) ($8,716)
Weighted average shares outstanding 8,266 8,217
Net loss per common share before cumulative
effect of change in accounting ($0.58) ($1.06)
* Proceeds calculated using average market price for the quarter.
** Application of modified treasury stock method of calculating common stock
equivalents due to potential dilution exceeding 20% (APB Opinion No. 15).
*** Proceeds calculated using higher of average or ending market price for the
quarter.
</TABLE>
<TABLE>
<S><C>
Exhibit 99
KEY TRONIC CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
For the three quarters ended April 1, 1995 and April 2, 1994
Three Quarters
Ended
April 2, 1994 April 1, 1995
Honeywell
Keyboard Key Tronic Key Tronic
Division Corporation Combined Corporation
----------- ------------- ------------- ------------
(in
thousands, except per share amounts)
(unaudited)
Net sales $ 5,539 $ 116,755 $ 122,294 $ 147,371
Cost of sales 5,296 104,186 109,482 124,757
---------- ------------ --------- -----------------
Gross profit on sales 243 12,569 12,812 22,614
Operating Expenses:
Research, development and engineering 383 4,367 4,750 4,566
Selling 417 5,836 6,253 3,902
General and administrative 324 8,918 9,242 8,233
Restructuring of business line 1,021 1,021 ________________
---------- ------------ --------- -----------------
Operating Income (Loss) (881) (7,573) (8,454) 5,913
Net Interest Income (Expense) & Other 46 (1,103) (1,057) (2,222)
---------- ------------ --------- -----------------
Income (Loss) before federal taxes on
income and cumulative effect of change
in accounting (835) (8,676) (9,511) 3,691
Provision (Benefit) for Income Taxes 0 40 40 1,115
---------- ------------ --------- -----------------
Earnings (Loss) before cumulative
effect of change in accounting (835) (8,716) (9,551) 2,576
Cumulative effect to July 4, 1993, of
change in accounting for income taxes 0 8,750 8,750 0
---------- ------------ --------- -----------------
Net Income (Loss) ($835) $ 34 $(801) $ 2,576
========== =========== ========= =================
Earnings (Loss) Per Share
Before cumulative effect of change in
accounting N.A. ($1.06) ($1.11) N.A.
Net Income per weighted average share N.A. N.A. ($0.09) N.A.
Primary Earnings Per Common Share net of
cumulative effect of change in accounting N.A. $0.01 N.A. $0.27
Fully Diluted Earnings Per Common Share
net of cumulative effect of change in
accounting N.A. $0.01 N.A. $0.25
Weighted Average Shares Outstanding N.A. 8,217 8,617 N.A.
Primary Shares Outstanding N.A. N.A. N.A. 9,270
Fully Diluted Shares Outstanding N.A. N.A. N.A. 10,234
</TABLE>
See accompanying note to pro forma finanical statements
Exhibit 99
KEY TRONIC CORPORATION
NOTES TO PRO FORMA FINANCIAL STATEMENTS
The objective of the Pro Forma Statement of Operations is to show what the
significant effects on the historical financial information might have been
had the Company acquired the Keyboard Division of Honeywell, Inc. on July
4, 1993. The amounts are based upon certain assumptions and estimates which
Key Tronic Corporation believes are reasonable. The pro forma results do
not necessarily represent results which would have occurred if the entities
had constituted a single entity during such period and may not be
indicative of future results.
NOTE 1
PRO FORMA STATEMENT OF OPERATIONS
As required by APB Opinion No. 16, pro forma information on results of
operations is presented for the three quarter periods ended April 1, 1995
and April 2, 1994. The results of operations is being reported as if the
companies had combined at the beginning of each respective fiscal year.
For the three quarters ended April 2, 1994 the information reported is one
month of results of operations for the Honeywell Keyboard Division and the
actual results of operations for Key Tronic Corporation, as Key Tronic
Corporation's actual results include eight months of operations of the
former Honeywell Keyboard Division.
NOTE 2
ALLOCATIONS
Corporate allocations for services provided by Honeywell headquarters for
the Keyboard Division were eliminated. These services were for payroll
processing, employee benefit administration, treasury and banking services
and in-house legal services. Key Tronic Corporation already performs these
functions and does not anticipate increased costs in these areas.
